Job Losses to Impact Residential Property Demand in IT Cities ..!

With job losses
looming large for those employed in the IT industry, demand for residential
realty across Indian IT hubs of Bangalore, Hyderabad, Pune, as also Navi Mumbai
in Mumbai and Noida in NCR could be impacted. Among cities, Bangalore and Pune
both rely heavily on IT companies for not only job creation but also to drive
office and residential real estate demand. Resultantly, these real estate
markets face the maximum risk from an IT meltdown.

According to industry
body estimates, the Indian IT and BPO sectors employ close to four million
people in over 16,000 companies and the middle management is at maximum risk of
job loss in these times of disruption, increased automation and artificial
intelligence. Professionals aged 30-40 years and above, typically earn anywhere
between 20-60 lakh per annum, and form an average of 17% of the population
across leading economic centers of Bangalore, Mumbai, Delhi, Hyderabad, Pune
and Chennai.

According to Indicus
data, this share of population for Bangalore is around 19%, or over two lakh
people, in absolute terms. For real estate developers here, these mid-level
managers are an important set. Over the years, they have not only set aside
huge savings to make down-payments for a house purchase, but their choice of
homes would incline more towards mid-premium housing projects, a category that
is both lucrative and in demand at the moment.

With this bracket of
consumers coming under serious risk of a job loss, there is a possibility that
recovery of residential sector in the mid-premium category will be delayed. JLL
India’s REIS data on project launches over the last five years confirms this
linkage here.

The price category that middle management employees typically
target are apartments in the price range of INR 4,000-10,000 per sft, which
contributed close to 45% of the total project launches on an average in the
five-year period until 1Q2017.

Source: JLL REIS

Due to the slowdown
witnessed over last few years in Indian residential sector, luxury sales have
been affected to a great extent. Mid-segment homes, however, were continuing to
witness momentum, especially in projects of reputed developers. So, are we
looking at a prolonged recovery in the residential asset class, given the
current slack in IT job market?

If the current job
market scenario continues for a long time, it could quite possibly have a
negative impact on residential demand, especially in the mid-premium segment.
Affordable and mid-segment homes, however, could see momentum thanks to a
strong push by the government, low interest rates and the current slackening of
prices.